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SEBI’s Stance on Cryptocurrencies and CBDCs
SEBI, also known as the Securities and Exchange Board of India, has maintained a cautious approach towards the cryptocurrency space. The regulatory body expresses skepticism regarding the potential outcomes if cryptocurrencies were to be legalized or if the market were to operate freely within the country. Despite this stance, SEBI shows support for the promotion of Central Bank Digital Currency (CBDC) by the Reserve Bank of India (RBI).
SEBI Chief’s Perspective
Madhabi Puri Buch, the Chief of SEBI, acknowledges a possible scenario where the crypto industry gains momentum in the absence of significant developments in the traditional market. Buch highlights the benefits of the crypto industry, particularly in terms of instant settlements and tokenization. She notes that transactions in the crypto space are either instantly settled or near-instant depending on the transaction volume.
This trend presents a challenge for the conventional financial sphere, as users may gravitate towards alternatives that offer quicker transaction finalization. While many countries require up to two days to settle a transaction, cross-border transactions often face additional complexities. In contrast, cryptocurrencies facilitate swift finalization of payments and securities trades.
Plans for Instant Settlements
SEBI is considering introducing a mechanism for instant settlements, potentially making India the second country after China to offer such a service. The proposed launch date is tentatively set for March 2025, pending approval from the SEBI Board. If approved, SEBI will move forward with providing instant settlement services to users.
Buch also addresses concerns raised by foreign portfolio investors regarding operational challenges associated with adapting to faster settlement cycles. SEBI appears to be actively preparing to engage with cryptocurrencies, as evidenced by its prior intention to explore blockchain technology.
Exploring Blockchain Technology
SEBI initiated an investigation into blockchain technology to assess its potential applications in regulatory oversight processes. The Committee on Financial and Regulatory Technologies (CFRT) was established to explore the utilization of blockchain in asset management, post-trade settlement, and fundraising.
While SEBI currently refrains from endorsing cryptocurrencies, it remains open to leveraging blockchain technology if deemed beneficial. This strategic shift aligns with the ongoing surge in cryptocurrency prices, with Bitcoin (BTC) currently priced at $73,464.40.
Recognizing the importance of tokenization and instant settlements, SEBI aims to adapt to evolving market trends and compete with cryptocurrencies effectively. Failure to address these emerging needs could result in investors transitioning towards alternative investment avenues, leaving traditional mechanisms behind.
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